An extremist, not a fanatic

February 01, 2008

One of Gordon Brown's longstanding ideas has been that schools must unlock hidden talent. We "cannot afford to waste the potential of any child, discard the ability of any young person, leave untapped the talents of any adult."This seems trivially reasonable, doesn't it?No. This new paper points out that a school system that provides lots of opportunities can end up making us unhappier:

The idea that expanding work and consumption opportunities always increases people's wellbeing is well established in economics but finds no support in psychology...Expanding work and consumption opportunities are a good thing for decision utility but may not be so for experienced utility.

The problem is that of an education-induced prediction bias. A school that gives us lots of opportunities raises our aspirations by more than it raises our likely achievements. The upshot is that its students end up unhappy, feeling they've missed their chances.Take two similar people in similar, decent jobs. One went to an expensive school that gave lots of opportunities for its students to become sportsmen, musicians, politicians or high-earners. The other went to a bog-standard comp. The latter is likely to be happier. Whereas the posh schoolboy will be filled with self-reproach at having missed so many opportunities, the comp boy will be happy at having made something of his life.There is, therefore, a trade-off between maximizing opportunities and maximizing utility. And as Brown exaggerates our need for talent and skills, perhaps there is a case for settling for having bad schools - especially as there's always something to be said for reconciling oneself to the inevitable.

November 06, 2005

What exactly is rationality? This is another issue raised by this post by Will Wilkinson.

Put it this way. Religion is rational, in the sense that it promotes well-being. Religious people tend to be happier than others, and suffer fewer misery-inducing divorces. Religion also insures (pdf) people’s income and happiness against shocks to their income. And religion can, arguably, promote economic growth (pdf), by encouraging people to work harder or trust each other.

In these ways, religion is rational.

But we secularists would argue that religion is irrational, in the sense that a belief in God is inconsistent with the evidence.

From my secular standpoint, then, there’s a clash of rationalities. Beliefs that are rational in the sense of promoting important human goals are not necessarily rational in the sense of being consistent with the evidence.

Charles Taylor’s essay, “Rationality” (in Hollis and Lukes, Rationality and Relativism) makes this point. He contrasts modern science with primitive magic. The former has greatly enhanced our understanding of the universe – and delivered huge technological goods. But it’s destroyed the comforting belief that mankind has a special place in the universe, and cultivated the unpleasant (if true) notion that we are alone in a cold indifferent world.

Robert Nozick has presented this conflict between rationalities in a different but acute way:

A mother is presented with courtroom evidence that her son has committed a grave crime, evidence that convinces everyone else but, were she to believe this, that would make her life miserable thereafter. Is it rational for her to believe her son is guilty? (The Nature of Rationality p69)

Obviously, I’ve no solution to this trade-off. I’ll just offer two thoughts.

1. Anti-religious people – like Richard Dawkins – would deny there’s a conflict between these two rationalities. They point to the evil effects of religion – the Inquisition, 9/11, the oppression of women – and the aesthetic merits of science. Is this a true solution? Or just a comfortable one?

2. People have considerable capacity for self-deception, for holding beliefs that make them happy rather than are consistent with the evidence. So why has religion become less prominent within our preferred* forms of self-deception in the modern age – especially in western Europe?

February 24, 2005

One of the problems I have in my day job is that I’m sometimes accused of being useless. Some people think I’m supposed to give investment advice. I prefer to tell the truth*. And the truth is, of course, that most investment advice is utter rubbish; this pdf represents the largest part of the exception.

This isn’t mere navel-gazing. It raises an important issue – the trade-off between truth and utility.

This is, of course, an everyday problem. Can you even imagine what sort of life a perfectly truthful man would lead? Could he ever keep a job or a relationship? A little falsehood might be necessary for us to continue living. Donald Davidson (“Deception and Division” in Jon Elster (ed) The Multiple Self) has written of the benefits of abandoning truth and rational enquiry occasionally:

Both self-deception and wishful thinking are often benign. It is neither surprising nor on the whole bad that people think better of their friends and families than a clear-eyed survey of the evidence would justify. Learning is probably more often encouraged than not by parents and teachers who over-rate the intelligence of their wards. Spouses often keep things on an even keel by ignoring or overlooking the lipstick on the collar.

The problem is, though, that the trade-off between truth and utility isn’t confined to our private lives. It spills into public life.

John Rawls opened his A Theory of Justice with the claim that “truth is the first virtue of systems of thought.” But in many systems, it seems secondary to utility.

In investing, people don’t want the truth - that it’s hard to beat the markets and that one should trade stocks very rarely. Brokers want people to trade. And many investors want to feel they are doing something, or to believe that there are experts who know what the future holds.

In football, Jose Mourinho and Arsene Wenger rarely tell the truth. They are more concerned to build team morale or trick opponents.

In politics, truth would require us to acknowledge that there are trade-offs between most desireable ideals; that the median voter is not a legitimate recipient of redistribution; and that people like Iqbal Sacranie are just pompous idiots. Utility requires otherwise.

Indeed, Charles Taylor has argued that the very progress of science and technology has come at a price. To learn about the universe and the world, he’s said, requires us to abandon the ancient notion that the heavens and earth were a meaningful order with man at their centre. Our understanding of the world has come at the price of an alienation from it. From “Rationality” (In Hollis and Lukes (eds), Rationality and Relativism):

The dissociation of understanding of nature and attunement to the world has been very good for the former. Arguably, it has been disastrous for the latter.

Now, here’s my question. There are a great many constituencies pressing for prioritizing utility over truth; politicians, investment advisors, pseudo-scientists, religious figures, “community leaders” and so on. Who, then, stands for truth?

Not (all) academics, who are too busy grubbing around for money. The University of Newcastle’s Faculty of Medical Sciences reveals a lot about the state of academia. Nor journalists, who are more concerned to sell dead trees and strengthen the prejudices of their readers.

So, could it be that this is one of the merits and purposes of the blogosphere? It’s an arena in which the pursuit of truth – or to be less pretentious honesty – has a higher priority over utility?

* My preference for truth (or honesty) over utility is partly a reflection of my working class background. A good indicator of the difference between the working and the middle-classes is: what happens if you are dishonest? If you’re working class you get the sack; if you’re middle class, you get a pay rise. (Another indicator is the wearing of scarves. No working class man would ever drape his scarf over his shoulder. One of my most difficult tasks in life, when I see someone doing so, is to resist the temptation to pull it hard.)

January 09, 2005

As old men occasionally do, Christopher Fildes in this week’s Spectator makes an interesting point. Rather than pay chief executives big bonuses, he says (reg req):

I advocate executive maluses, or mali. These, in bad years, would make the chief exec contribute to the company, which could obviously use the money — a genuine incentive to perform.

This is consistent with today’s thinking about the psychology of risk. According to Kahneman and Tversky’s prospect theory, most people are loss averse. They’ll do more to avoid losing, say, £10,000 than they’ll do to gain £10,000.

Whether this is because of the endowment effect or habit formation in consumption doesn’t matter here. What matters is that people might work harder to avoid losing money than they will to make money. After all, if you want to teach someone to swim, it’s better to throw him in the deep end than to offer him a cash prize.

This raises the question. Assuming you accept standard managerialist ideology, couldn’t there be a sharp trade-off between the pay package that best incentivizes managers and the package that retains and attracts them?

My old friend Peregrine Worsthorne was deploring the other day the decline in the quality of courtesans. And it is true that those who get themselves into the headlines today, either by the voracity of their sexual appetite or their status as mistresses of prominent men, do not strike one as notably interesting or desirable.

December 16, 2004

A couple of very interesting papers on the minimum wage have come out recently.

One that corroborates my prejudices Bayesian priors is by David Neumark. Unusually, he has studied the long-run effects of minimum wages. These are, he claims, “unambiguously adverse.” The longer people are exposed to minimum wages, the less they earn.

This is because minimum wages encourage some young people to leave school to get jobs – thus reducing skill accumulation – and push others out of work, which reduces their experience and hence later earning ability.

A paper that challenges my priors is by Arantza Gorostiaga and Juan Rubio-Ramirez. It’s entitled “Optimal minimum wage in a competitive economy”, which invites the riposte; “It’s zero you twonks.”

Not necessarily. Imagine a government wants to redistribute income to low-skilled workers. One way of doing this is to tax the rich. But this is inefficient; it reduces their labour supply. Under some conditions, therefore, a minimum wage might be a less inefficient form of redistribution than tax and benefits. Not least of these conditions is that the price-inelasticity of demand for low-skilled labour be low.

This paper is a neat addition to the small but interesting literature on how a minimum wage might be efficient in a second-best world. An older contribution is this.

What really annoys me here (but not as much as the pretence that opposition to minimum wages is heartless towards the poor) is the vast gulf between the academic arguments for a minimum wage and the politicians’ ones. If a politician were to follow the Gorostiaga and Ramirez line, they’d say: “Of course the minimum wage destroys jobs, but we want to redistribute income to the working poor and the alternative is to tax the rich. And it’s better to lose some low-skilled labour than high-skilled labour.”

December 13, 2004

Today’s report by the Employer Task Force on Pensions (set up by the government, not employers) highlights three aspects of our dominant New Labour/managerialist ideology.

Aspect one is paternalism. The report begins from the twin presumptions that people aren’t saving enough for their retirement, and that something should be done about this.

Both presumptions are dubious. Research by Sarah Smith, Susann Rohwedder and John Karl Scholz suggests that most people do save enough for their retirement, at least if they are allowed to retire at a time of their own choosing. Sensational talk about huge “savings gaps” is more contentious than you might think.

But even if it’s not, it’s not clear that this is a problem for anyone except those individuals stupid enough not to save enough.

Aspect two is the belief that there’s no conflict between bosses and workers.

The ETF says: “a growing number of employers do not see the same value in pension provision that they once did.”

This is no surprise. The two conditions in which it was worth their while to contribute to pension schemes have ceased to exist. These were:

When share prices rose faster than salaries, firms could take the pension surplus for themselves. But this was an artefact of the 1980s and early 1990s. It’s not likely to happen again.

Final salary pensions gave workers an incentive to stay with their employer. However, with companies facing increasing firm-specific volatility, perhaps because of increasing creative destruction, the value of retaining staff – especially perhaps older staff who are less able to adapt to new technology – is fading.

Indeed, for employers, it might be a good thing if workers don't save for their pensions. This would create a pool of workers who need jobs in their old age. Such an increase in the labour supply would hold down wages.

In these ways, the interests of bosses and workers now diverge, in a way that they didn’t a few years ago.

Despite this, the ETF calls on firms to increase their pension contributions to around 10 per cent of salaries.

But why should they do this? It’s because if they don’t do so voluntarily, the government will compel them to. The report says: "This is the ‘last chance saloon’ for voluntarism. If business fails to grasp this opportunity, it will face higher taxes and/or compulsion in the future."

And herein lies the third aspect of managerialist ideology – an ignorance of trade-offs. If you raise the price of something, people will buy less of it. Better pensions for some workers, therefore, means unemployment for others.

I highlight these three aspects of managerialist ideology for two reasons. First, to show that even apparently technocratic documents are ideological texts.

Second, to remind ourselves that there are alternatives. Why can’t we recognize trade-offs between important values, conflicts between interest groups and that the function of government is to protect us from other people, not from ourselves?